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CBRE Group, Inc. is the world’s largest commercial real estate services and investment firm, with 2017 revenues of $14.2 billion and more than 80,000 employees (excluding affiliate offices). CBRE has been included in the Fortune 500 since 2008, ranking #207 in 2018. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.

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CBRE Global Investors, combined with CBRE Clarion Securities and CBRE Caledon, is one of the world’s leading real asset investment managers with $105 billion in assets under management.

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Danny Queenan, Global CEO, Real Estate Investments.

BLOGS

Regularly released content on the state of the real estate and infrastructure industry are produced by our subject matter experts and shared on their blogs. A selection of them can be found below.

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ASIA PACIFIC WATCH

China’s transportation authorities estimate that over 3 billion trips will be made in the coming month nationwide as many people make the annual migration back to their ancestral homes to celebrate the Lunar New Year. Although the latter months of 2018 proved challenging for some parts of the Chinese economy – especially the manufacturing and export sectors – this should be balanced with the still commendable domestic consumption growth indicators. Whereas the ongoing trade war with the U.S. has negatively impacted industrial production and the external sector, domestic activity has held up well. E-commerce sales last Singles’ Day (11 November) surged to new highs. Alibaba alone reported over USD 30 billion of sales (gross merchandise value) for the event. Euromonitor reports that 55.1% of all e-commerce sales globally already take place in China and that this share will continue to grow in the coming five years. Although some analysts have sounded an alarm over the decelerating growth of retail sales and of GDP growth generally, they are delivering still solid rates of expansion off ever-larger bases. In the Chinese traditional calendar, we are entering the Year of the Pig: an animal understood to be a symbol of wealth and good fortune. Those born in the Year of the Pig are said to enjoy life but can be materialistic and tend to be a bit lazy. We will be hoping that these characteristics catch on further. As gift-giving, food purchases and general shopping increasingly take place online, rather than in traditional retail formats, this bodes especially well for modern logistics facilities in China.

EXPORTS DOWN, DOMESTIC DEMAND HOLDS UP

The media has made much of China’s decelerating industrial production and export figures and given the heightened state of uncertainty caused by the Trade War with the US administration, this is to be expected. But for at least the past decade, authorities in Beijing have been trying to restructure the economy away from production and towards consumption. To the extent that goods are manufactured in China, emphasis has been on higher value goods more than the volume produced. So the Trade War in one sense encourages the authorities on this path with an even greater sense of urgency than previously. The Consensus Economics mean forecast for nominal retail sales this year is lower, but still robust: 9.0% and with further deceleration of growth to 8.7% in 2020.

FEBRUARY 2019

20,773.49

3.8%

Nikkei 225

27,942.47

8.1%

Hang Seng

2,584.57

3.6%

Shanghai Composite

108.85

-0.7%

Yen/Dollar

Data points through end of January 2019. Change represents month-over-month change.

CHINA EXPORT GROWTH AND RETAIL SALES

Note: In local currency units. Source: Oxford Economics

PRINCIPAL CONTRIBUTORS:
 
Shane Taylor
Sophie Kao
INVESTMENT VOLUMES DOWN IN 2018

Transaction volumes of standing real estate took a pause in 2018 with the total of USD 29.1 billion, almost 18% down from 2017 and the lowest since 2014 (RCA). This was in large part due to the notably smaller volume of office and multifamily residential sector trades compared to previous years. In contrast, the industrial/logistics sector recorded its highest investment volume of all time with over USD 5.9 billion in transactions across the country for the year. The hotel sector also enjoyed a record strong year with almost USD 4.3 billion in sales. Not included in this tally was the sale of development sites and although these volumes were down as well, the value of land sales across China continues to dwarf that of standing assets although quality sites are getting rare.

CHINA TRANSACTION VOLUME BY SECTOR
Note: Based on independent reports of properties and portfolios USD 10 million and greater. Office, retail, industrial, apartment, senior housing & care and hotel transactions included. Development sites excluded. Source: Real Capital Analytics, data as of Q4 2018, Provisional
OFFICE YIELDS REMAIN FLAT

The prime office yields of China’s Tier 1 cities have barely seen a positive spread over the country’s ten year government bond yields for almost the past decade. China’s bonds have been yielding between 3.0% and 4.5% for the past 12 years. China’s economy has restructured and tilted more towards the services sector and solid growth in the business and financial services has followed. Office assets have performed generally well recording attractive rent and capital value growth. Investors have driven a structural repricing of the sector, with yields of 5.5% to 7.o% typifying the pre GFC era but yields have compressed since then. Today, all Tier One cities see their prime office markets valued in a similar yield range of between just 3.8% to 4.2%.

OFFICE YIELD TRENDS OF TIER ONE CHINESE CITIES
Source: CBRE ERIX, Oxford Economics, data as of Q4 2018
UPLIFT IN LOGISTICS RENTS

Non-bonded logistics is benefitting from rapidly changing Chinese consumption patterns. Although the delivery of new logistics supply has been strong in recent years, so too has absorption been strong – especially by activities associated with e-commerce. Vacancy rates in our preferred Chinese cities are in the single digits and within them, the inner-city, infill locations tend to have very low vacancy rates given the lack of land and competition for other uses. Rents in Tier One cities have grown by over 56% since the start of 2010. Tier Two cities, as a group, have undergone more modest rental growth. However among the Tier Two cities, so-called satellite cities (like Suzhou and Hangzhou) positioned within an hour or so drive of Tier One cities, have been outperformers.

LOGISTICS RENTAL TRENDS: SELECTED CITIES AND CITY TIERS
Note: Tier 1 cities are Beijing, Shanghai, Guangzhou and Shenzhen, tier 2 cities include Chengdu, Chongqing, Dalian, Hangzhou, Nanjing, Ningbo, Qingdao, Shenyang, Tianjin, Wuhan and Suzhou. Source: CBRE ERIX, data as of Q4 2018
RESIDENTIAL PRICES RISE IN MOST MAJOR CITIES

The monthly residential price index of 70 major Chinese cities, shows the majority (47 cities) recorded MoM price increases in December 2018. But a growing number (22 cities) saw MoM price falls and the remaining city recorded no price change. The cycle of successive MoM price growth in the majority of major cities has been a very long one – extending for three full years already. This is largely due to strong demand from the urban middle class and their aspirations for higher living standards. With the pace of GDP growth falling, a key question is the extent to which this large sector is a favored route to stimulate growth. Recently, household income tax cuts were announced which should help buoy household consumption and the demand-side drivers of housing.

HOUSE PRICE MOVEMENTS OF CHINA’S 70 MAJOR CITIES
Sources: National Bureau of Statistics, CBRE Global Investors, data as of December 2018
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This information is for our clients and investors only. Please note that the content of this report is for informational purposes only and should not be viewed as investment advice or an offer or solicitation. Any opinions are solely those of the Strategy and Research Team of CBRE Global Investors and are subject to change without notice, and may not be consistent with market trends or future events. This research is based on current public information that we consider reliable, but we do not represent it as accurate, updated or complete, and it should not be relied on as such.

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